At around $600 billion or Rs 27,46,200 crore, the total banking assets in India are about the same as the world’s 25th largest bank, the Rabobank Group. India’s biggest bank, State Bank of India (SBI), has assets of $107 billion. Still, it’s only the world’s 84th largest bank its assets are less than 7 per cent of Barclays Bank, the world’s largest.

In a business where size matters most, the Indian banking sector is small and scattered. As on March 2006, there were 218 scheduled commercial banks, of which, the top 25 accounted for about 85 per cent of assets. Of these, 18 have the same owner (the government) and do the same thing, but any move to merge some of them is likely to run into a wall of Left opposition.

Growth, though, hasn’t been a problem. At Independence, banking assets stood at Rs 1,151 crore; as of March 2005, at Rs 23,48,186 crore — a growth rate of 14 per cent per annum over 58 years. While that’s an enviable pace, it has come on a small base and has been volatile. Take any 15-year period, and the fastest growth has come between 1963 and 1976 — 18-20 per cent per annum. Between the glamorous post-liberalisation period of 1991 and 2005, the rise was 15.7 per cent per annum. Scale takes time to build, and takes far more out of banks seeking growth.

The one difference that liberalisation has brought is consumer focus, which has helped non-PSBs increase their market share. Between 1990 and 2005, SBI’s assets have increased seven-fold, but its market share has dropped from 25 per cent to below 20 per cent. Now, the number two player, ICICI Bank, is going to the villages (See pages 4 and 5). Can PSBs compete?

... contd.